Sent: Monday, March 22, 2004 2:36 AM
Subject: S7-13-04
Dear Jonathan G. Katz,
My name is Medha Parthasarathy from Mumbai, India. I am doing a study
about the depository implementation in various countries. I am doing an
in-depth study about Australia, USA and India. I came across this
particular questionnaire for feedback in sec.gov.
Hope my feed back would help in evolving a better depository services at
shortest time cycle
Regards
MEDHA PARTHASARATHY. ACA
1304 E Runwal Centre,
Govandi Station Road,
Govandi
Mumbai
India
Pin 400 088.
Phone no : 00 91 22 55967315
Mobile no : 0 91 98204 09283
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I thought I will forward my views which are basically a reflection of the
implementation experience in India Depository Scenario.
1. Should securities be completely immobilized or dematerialized in
the U.S.? If so, which would better serve the market - complete
immobilization or dematerialization? Why?
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I think you must go for dematerialization for shares which comes to the
depository with an option for holding of physical shares by the investor
on their choice.
When an investor choose to demat the shares (IPO or other wise), share to
be transferred to the legal ownership of the depository and a beneficial
ownership credit to be given in the books of the depository in favour of
the investor.
The only control which has to be maintained in the books of the registrar
is the following:
Total Number of instruments issued: A
Instruments which are held in physical form - b
Instruments which are held in the name of the depository - c
Where a = b + c
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2. What are the costs and benefits of complete immobilization or
dematerialization?
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It removes the paper from the whole system and the cost will come down
drastically.
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3. Are there operational, legal, or regulatory impediments to
immobilization or dematerialization?
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I would not know much about the American regulation to give a comment.
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4. What advantages might certificates have over securities held in
book-entry- only form (i.e., proof of ownership in the event of a loss of
electronic records of ownership)? What regulatory initiatives should be
considered to address these advantages if the markets were to move away
from certificates?
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Effective bcp /drp measures.
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5. Should the existence of a viable, widely available direct registration
system that preserves the benefits of holding securities in the form of
physical certificates be a prerequisite to complete immobilization or
dematerialization?
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No comments
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6. What should be done to increase the availability and use of DRS or to
otherwise improve DRS? For example, should the Commission adopt
operational or processing rules specifically for processing book-entry
transactions (i.e., DRS and dividend reinvestment and stock purchase
plans), including, but not limited to, timeframes for processing these
transactions?
====================Views Start
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Regulatory to give incentives to the investor to hold the shares in the
book entry form. In the Indian experiment, government waived the transfer
charges of 0.5% on the value of shares, in case the transfer is done by
book entry.
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7. What are the back office costs at broker-dealers to process securities
certificates? What are the costs at transfer agents to process securities
certificates? How do these costs compare to the costs of processing
book-entry securities?
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The cost of operations comes down drastically at the brokers and transfer
agents. In case of book entry transfer, the transfer will be affected by
the depository and registrar is informed of the transfer once in a week.
I have heard from the Indian experience the cost of the fund managers has
fallen substantially after the implementation of the depository
(www.nsdl.co.in )
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8. What should be done to encourage more companies to issue their
securities in a completely immobilized or dematerialized format? Should
publicly traded companies be required to do so?
====================Views Start
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Yes, I think all public traded companies when has give the investor the
option to hold the shares in the demat form. It must be mandated on the
issuers. This has worked well in India (www.sebi.com )
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9. What can broker-dealers do to facilitate complete immobilization or
dematerialization on both the retail and institutional customer levels?
Are registered representatives sufficiently educated about DRS and do
they communicate to investors available options to holding a certificate?
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I would suggest the depository should go retail by conducting investor
seminars. And also the depository must provide all information on
benefits of the book entry in their sites. Encourage the participants in
the above.
This has worked well in India
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10. What can transfer agents do to facilitate complete immobilization or
dematerialization on both the issuer and investor level?
====================Views Start
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The cooperation of the transfer agent is important for the
dematerialization process and they must have resources for early demat
when investor submits for dematerialization.
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11. What incentives or disincentives can be employed to discourage
shareholders from requesting certificates? Will investors be less
inclined to request a certificate if they were required to pay more to
obtain, transfer, and trade certificated securities than book-entry
securities? Should investors who choose to hold certificates bear a
greater amount of the overall costs associated with producing and
processing those certificates?
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The retail investor is sensitive to cost. The regulator should provide
some waiver of statutory charges to the investors who hold the shares in
demat form. In Indian experience, the transfer charge of 0.5% is waived
by the government from the date of implementation till now.
The depository system should provide for the book entry pledge of shares
: This will help the investor to take money from the banks incase of any
short term requirement.
In the Indian scenario, the shares are in the account of the investor
with a right to call to the receipent of pledge i.e the banks. So the
investor get the corporate actions and the bank has a lien over the share
for the loan given
Securities lending and borrowing of shares through depository where
depository tracks information for the investor. This will give an
opportunity for the investor to make money out by giving the legal
ownership to another person but holding back the beneficial ownership.
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12. Are any rules or regulations needed to enhance the safety of
book-entry systems operated by transfer agents or broker-dealers?
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All participants should be connected with the depository on real-time
basis. The records showing account balances of participants and
depository must be reconciled at the end of the day.
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13. What can be done to engender public confidence in certificate-less
systems?
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A good disaster recovery plans should give confidence to the users to
come to the demat forms
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